Why silver prices are going through the roof

While gold may be a favourite with Indians, it is silver that has a lot of industrial uses. This is primarily because silver is the best conductor of electricity, the best heat transfer agent, the best reflector of light, a good lubricant and a versatile catalyst and alloy.

At the same it is also the most malleable and ductile.

As a recent report brought out by Hinde Capital puts it "It is used in photography, electrical applications, particularly in conductors, switches, contacts and fuses. Silver alloys are used in batteries as cathodes."

Why silver prices are going through the roof

"As a bactericide, silver is used in water purification and air handling systems. Silver is also a natural biocide and is very effective against bacterial infections such...New products using silver's biocidal qualities are being developed each year; clothing, bandages, toothbrushes, door-knobs (flu-protection), keyboards, the list goes on growing."

All these industrial uses ensure that there is a good demand for silver. But that still does not tell us why the silver price is going up so fast.

Is the world running out of silver?

If some of the premier silver analyst of the world are to be believed the world is running out of silver. Some like Adrian Douglas, the proprietor of Market Force Analysis and also a director of GATA (the Gold Anti-Trust Action Committee), even suggest that the world will run out of silver in 2020, and silver will thus become the first element on the periodic element likely to become extinct.

In fact if one believes numbers put out by Theodore Butler, the world's foremost silver analyst, the situation gets very scary.

Why silver prices are going through the roof

The earth's crust has 17.5 times more silver than gold, but the production of silver cannot be increased overnight.

A majority of silver (around two-thirds) is mined as a by product of mining of other metals like copper, lead and zinc. So production of silver in a way is linked to the production of other metals.

The skewed gold silver ratio

Silver bulls have been of the view that the price of gold and silver over the period of history has been in the ratio of 15:1.

As Jeff Nielson, editor of bullionbullscanada.com put it in a recent column "For most of the last 5,000 years it has averaged approximately 15:1 until this century, when a combination of developments skewed this ratio to its most extreme imbalance in 5,000 years."

The current ratio of gold and silver is around 35. So silver bulls have been arguing that due to this the price of silver has to go up.

Why silver prices are going through the roof

He further adds "While you fetch your magnifying glass, I'll tell you that the market cap of the silver industry is $73.1 billion. It barely registers when compared to a number of other industries I picked mostly at random.

The dying newspaper industry is over 26 times bigger. Drug manufacturers are 213 times larger....And here's the fun one: the market cap of the entire silver market, with all its record-setting prices and stock-screaming highs, represents just one-third of one percent of the oil and gas industry."

So as more and more investors catch onto investing in silver, the prices are likely to rise.